Scoring My Predictions for 2023
Big end of the year post vibes
This originally appeared in ACS Industry Matters. I have made a few slight edits since then (which I call out in the text).
Scoring Chemical Industry Trend Predictions from 2023
Earlier this year I put out some predictions for 2023. The year is ending in a few weeks and it’s time to check in and see how I did.
No Recession…Yet
Last year I wrote about how a recession might be lurking out there. I’ve had some former coworkers in industrial chemicals get laid off this year and a lot of anecdotes from former coworkers telling me of small reductions in force across the industry. The silver lining here is that for the most part most of these people have been able to find employment at higher wages and better benefits. A big problem with a new job is that it often means moving cities, which can be tough if you have a young family. Overall, I think the chemical industry has been pretty robust throughout 2023 (unless you are in Europe - I added this in post-hoc).
Biotech has been struggling. Biospace has been tracking many of the layoffs in biopharma this year including SQZ Biotechnologies (-80%), Regenxbio (-15%), Lyell Immunopharma (-25%), Arbutus Biopharma (-24%), and that was just some in November. To all of those affected in the space I hope you get new jobs soon. As I wrote last year, this stuff is way outside of your control and it doesn’t hurt to be ready.
Fragmentation and Consolidation
Last year I predicted that large chemical companies will seek to become more focused as we move into 2023 and either look to consolidate end markets by buying competitors businesses or divesting commoditized businesses. I think this is still true, but my timing appears to be off. While I think I correctly identified a trend I don’t think 2023 was a big year for it. We have seen overall fewer M&A deals in chemicals in 2023 than we did in 2022. Perhaps, this is due to a higher cost of capital partly due to the benchmark rate set by the Federal Reserve. Deals that made sense in 2022, and there were a lot, were probably more difficult in 2023.
I think that with higher interest rates this also means that chemical companies will have to be ruthlessly efficient, disciplined, and smart in how they provide returns to their shareholders. FTC might be having an impact too. I definitely recommend readers check out the Odd Lots podcast and a recent one with Lina Khan (head of the FTC) was excellent (also added post-hoc).
Start-ups are Starting and Growing
While everything above might seem grim or cynical I am still excited and hopeful about the current state of start-up chemical companies seeking to decarbonize the traditional petrochemical industry. Lummus and Citroniq just agreed to build commercial bio-based manufacturing capacity for polypropylene. Solugen is going to build a second plant with Archer Daniels Midland. Origin Materials just completed their first plant and has started producing biobased chemicals. Multiple enzyme immobilization companies such as Cascade Biocatalysts and Caravel Bio have raised their first rounds of funding. All of this forward momentum in chemicals is occurring in the wake of the traditional biotech pharma contraction (see above) and the bankruptcy of Amyris. I’m hopeful that this wave of companies is built differently than their predecessors with an early focus on free cash flow and picking strategic end markets. I think a winning combination for these companies will be a mix of industry veterans tempering new entrants with big ideas.
Overall, I’d say I got about half of my predictions right. Maybe next year I’ll have something different.